Reciprocal tariffs: India to offer lower duty rates as part of trade talks

India is hoping to escape the reciprocal tariffs from the US that are expected to come into effect from April 2 and would offer duty cuts as part of the bilateral trade pact that is being discussed by the two countries. Experts believe that there is scope for a cut in import duties by India and the domestic industry is also broadly supportive of such a reduction in tariffs.

India’s Commerce and Industry Minister Piyush Goyal, who is in Washington DC at present to initiate discussions on a bilateral trade agreement with the US, may also offer a sweetener on these lines with duty cuts across several goods and products.

Sources indicated that India is hoping to offset the impact of the reciprocal tariffs to some extent by offering tariff reductions on several items including automobiles.

Key merchandise exports from the US to India include items such as crude petroleum, coal and industrial goods, and experts highlight that there is scope to cut tariff on these items without hurting domestic players significantly.

Further, there is need to offer duty cuts to protect bilateral trade as the US is India’s largest trading partner and the largest export destination. Bilateral trade amounted to $190 billion and the US accounts for nearly 18% of India’s exports.

Following Prime Minister Narendra Modi’s meeting with US President Donald Trump, the two countries had decided to deepen bilateral trade ties and double it to $500 billion by 2030 and negotiate the first phase of a bilateral trade agreement by the fall of 2025.

However, since then, Trump has once again announced that reciprocal tariffs would come into effect from April 2, raising concerns within India on how it would impact exports.

Ajay Sahai, Director General and CEO, Federation of Indian Export Organisations however, pointed out that it is difficult to gauge how a system of reciprocal tariffs would work and whether tariffs would be matched at a country level basis or on a product level basis. “One of the options is that the tariff of about 5% across the board would be levied by the US given that the duty differential between India and the US is 4.95,” he said.

However, given the overall target of increasing bilateral trade to $500 billion, Sahai said he expects that concessions on a product basis would be discussed as part of the trade pact negotiations. “It is likely that as part of the discussions both countries would sit down with an list of products on which they would want concessions,” he noted, adding that a silver lining is that domestic industry is now willing to cut duties, which is good in the long run.

Key items on which the US may seek duty cuts include automobiles, including electric vehicles, medical and diagnostic equipment as well as electronic goods. India could similarly seek duty concessions in items including auto and auto components, pharmaceuticals, textiles and footwear.

A recent report by the Global Trade Research Initiative had noted that one of the options for India on reciprocal tariffs is to offer zero tariffs on most industrial goods to the US.

“A more proactive approach would be for India to propose eliminating tariffs on most industrial products, provided the US does the same. India should identify tariff lines where duty cuts won’t harm domestic industries, referencing its past FTA offers to Japan, Korea, and ASEAN,” it had said, adding that agriculture may be excluded from the offer.

India should present this proposal before April, ahead of the US tariff decision, the GTRI report had advocated, adding that if accepted, India could significantly reduce or avoid reciprocal tariffs.